Correlation Between Hitachi Construction and CubicFarm Systems

Can any of the company-specific risk be diversified away by investing in both Hitachi Construction and CubicFarm Systems at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Hitachi Construction and CubicFarm Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hitachi Construction Machinery and CubicFarm Systems Corp, you can compare the effects of market volatilities on Hitachi Construction and CubicFarm Systems and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Hitachi Construction with a short position of CubicFarm Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hitachi Construction and CubicFarm Systems.

Diversification Opportunities for Hitachi Construction and CubicFarm Systems

0.51

Correlation Coefficient

Hitachi Construction  CubicFarm Systems

Very weak diversification

The 3 months correlation between Hitachi and CubicFarm is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and CubicFarm Systems Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CubicFarm Systems Corp and Hitachi Construction is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Hitachi Construction Machinery are associated (or correlated) with CubicFarm Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CubicFarm Systems Corp has no effect on the direction of Hitachi Construction i.e., Hitachi Construction and CubicFarm Systems go up and down completely randomly.

Pair Corralation between Hitachi Construction and CubicFarm Systems

Assuming the 90 days horizon Hitachi Construction is expected to generate 28.52 times less return on investment than CubicFarm Systems. But when comparing it to its historical volatility, Hitachi Construction Machinery is 21.88 times less risky than CubicFarm Systems. It trades about 0.13 of its potential returns per unit of risk. CubicFarm Systems Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5.00  in CubicFarm Systems Corp on December 29, 2024 and sell it today you would earn a total of  14.00  from holding CubicFarm Systems Corp or generate 280.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Hitachi Construction Machinery  vs.  CubicFarm Systems Corp

Hitachi Construction

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Hitachi Construction showed solid returns over the last few months and may actually be approaching a breakup point.

CubicFarm Systems Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CubicFarm Systems Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, CubicFarm Systems reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and CubicFarm Systems

The main advantage of trading using opposite Hitachi Construction and CubicFarm Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction position performs unexpectedly, CubicFarm Systems can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CubicFarm Systems will offset losses from the drop in CubicFarm Systems' long position.

The idea behind Hitachi Construction Machinery and CubicFarm Systems Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.